China Approaching NFTs With Caution


Key Takeaways

  • A joint group of Chinese regulatory bodies have published regulatory initiatives for the non-fungible token space.
  • The authorities noted the innovative aspects and potential of the technologies but also warned of risks.
  • The group laid out many initiatives that industry participants should adhere to.

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The China Internet Finance Association, the China Banking Association, and the Securities Association of China have put forward a joint initiative with the goal of managing the risks associated with NFTs. While acknowledging the innovation that blockchain technology has ushered forth, the group of authorities warned of “hidden risks.”

China’s Authorities Approach NFTs Cautiously

Unlike their hardline stance taken on cryptocurrencies and mining, China’s governing bodies seem slightly more open to NFTs, at least for now.

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Today, the China Internet Finance Association, the China Banking Association, and the Securities Association of China jointly published their initiative on non-fungible tokens. Writing that the country’s NFT market has “continued to heat up,” and acknowledging the “innovative application of blockchain technology,” the governing bodies nevertheless ordered adherence to a variety of different initiatives meant to manage the technology’s perceived risks.

The first initiative emphasized the need to promote innovation, calling for innovation to be approached with integrity so that the economy could benefit. An explanation of what this means followed, and it included such guidance as the standardization of blockchain technology applications.

The second initiative the authorities highlighted was the need to approach the technology with human nature in mind, such as the tendency for speculation. The specifics of this included  tempering the increasing financialization and securitization of non-fungible token assets, as well as preventing illicit activity.

The association then went on to list six codes of conduct that industry participants should follow. Underlying assets such as precious metals or securities are not be included as part of NFTs, nor is fractional ownership. Moreover, centralized trading (e.g. market makers) for NFTs would be barred. Cryptocurrencies are not to be used for the pricing and settlement of NFTs, the authorities also wrote before listing anti-money laundering and know your customer measures as requirements. Lastly, the group mentioned that non-fungible tokens are not be financed.

Furthermore, the bodies jointly called upon consumers to demonstrate personal risk management practices, such as by resisting the urge for rampant speculation and properly securing one’s own digital assets.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and several other cryptocurrencies. 

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